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I sat down with an elderly couple this week.
I was invited to review their current investment status and and based on my review, introduce them to a reputable asset management firm who would take additional steps to ensure the safety of funds.
It was really interesting to listen to the investment decisions they had made for a couple of years. What was not interesting, was listening to tales of how they had been swindled by a stock broker who decided to sell off their entire portfolio of shares without their knowledge.
The stock portfolio, he sold off, was worth N10m.
and he didn't remit a dime back to them.
Now, that's enough to give an elderly retired person a heart attack.
But they survived and now they are both actively involved in selecting investment options for themselves.
I was invited over to share my knowledge of safe investment options they can invest in for this stage of their lives.
I couldn't get over the loss they experienced due to fraud and it inspired today's post.
There are many reputable asset management firms you can work with to help you make investment decisions but you still need to be involved in the process.
You shouldn't completely delegate this responsibility for any reason.
Picking an investment adviser can be quite complex, that's why it's important to be careful and thoughtful when selecting any company to help you save, invest and protect your life savings. A little research can save you a lot of stress eventually.
So what are the questions to ask any investment company before you hand over your life savings?
What is your investment approach?
The bucket approach to investing is a great approach to investing.
That's because it takes into account your stage of life and risk tolerance levels. Work with the investment company to ensure they take into account your investment needs in their overall investment approach.
For instance, if you need your savings in safe liquid assets, you should ask whether they plan to actively invest in low risk investments or relatively high-risk investments
Don't be carried away with an investment company who promises to make you a lot of money. If you want someone to do that, at least, be aware of the risk you're taking . It's safer to work with a firm which makes investments consistent with your risk tolerance level and investment goals.
What's your management style?
Investment companies can manage your money
for you or manage your money
with you.
Different people have different needs when it comes to making investment decisions , so it’s up to you to decide how hands-on you want o be.
When you sign on with any investment company, there should be a written agreement of how they plan to manage your money.
Read the agreement carefully, and ask questions if you’re unsure about anything.
Are you signing your funds over to this company? Will they check in with you before making a trade/sale, or when re-balancing your accounts? If you’re uncomfortable with anything in the agreement, bring it up immediately or seek legal counsel
How do you get paid?
Identify how the investment company is compensated to gain a better understanding of any potential incentives and conflicts of interest. Typically, investment companies are paid through: 1) client fees ("fee-only"), 2) commissions, or 3) a combination of both ("fee-based").
Anytime you interact with any investment company, make sure you understand how they get compensated for the service they are providing. More conflicts of interest arise when commissions are involved.
Investment companies are always influenced by their compensation method - if not intentionally, then even inadvertently or subconsciously,
What are the details of your historical returns?
A red flag for investment fraud is when an investment company says that the investment strategy that they put your hard earned money into is secret or too complicated for you to understand, you should be very careful.
It’s important for you to understand how your investment produces returns. Returns are accomplished in a number of ways, including selecting an active asset portfolio, following trends or exploiting market inefficiencies. But, at the end of the day, you need to understand the strategy, and if the investment company won’t explain it, consider it a red flag.
No doubt, we live busy lives and working with a investment professionals to help you implement your investment goal is a great way to get your investment plans in place.
However, watch out for red flags and get actively involved in the process.
While these are questions to ask to ensure you don't lose your life savings, I must admit, it's also great to learn how to make investment decisions on your own.
No one can take that knowledge from you
and trust me, knowledge is power.
Seats are filling up for
the how to invest workshop 3.0, register to learn what's important
Ignorance should not be a reason why you do not achieve your wealth potential
Excerpts from;
https://www.learnvest.com/2013/03/5-red-flags-when-choosing-a-financial-planner/2/, http://guides.wsj.com/personal-finance/managing-your-money/how-to-choose-a-financial-planner/, https://www.forbes.com/sites/laurashin/2013/05/09/10-questions-to-ask-when-choosing-a-financial-advisor/2/#53a8a1924113